Requires licenses for administrators of product warranties

BILL NUMBER:S2218

Title of bill

An act to amend the insurance law, in relation to licensing requirements for persons who offer warranties for motor vehicles and appliances

Purpose/summary of provisions

This bill requires administrators of product warranty contracts to obtain an administrator's license from the Insurance Department after showing: 1) experience and competence in the business; 2) minimum net worth of $150,000; and 3) a contract liability policy from a New York insurer indemnifying the administrators, the seller and the purchaser of the service contract in the event of loss or depletion of the claims reserve account held by the administrator. This bill adds a new article to the Insurance Law (21-A) entitled "Administration of Product Warranties." The new article defines the covered requirements, provides penalties for violations, and requires the Insurance Department to promulgate regulations to implement the provisions of the article.

Justification

At the present time, New York consumers can purchase product warranty coverage against manufacturers' defects. The most common item covered is an automobile, although more recently coverage is available for large appliances like televisions, washing machines, refrigerators, freezers, home computers, etc. The consumer pays the retailer in advance for this coverage. The retailer in turn pays a service contract company to administer the claims during the term of the contract. During the last few years, some service contract administrators have been improperly managed, forcing at least three large contract administrators into bankruptcy. In each instance., there was insufficient backup insurance and/or reserves to honor consumer claims under the contract, thus shortchanging New York consumers. This bill will rectify the situation by requiring adequate backup insurance to honor consumer claims.

Fiscal implications

To the extent that licensing fees do not cover the Department's cost of reviewing and issuing an administrator's license, there may be a slight impact on the insurance industry which pays the cost of running the Insurance Department. There is no fiscal impact to the State.

Effective date

This act shall take effect on the first of January after it shall have become a law.